Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, July 5, 2011, from 10:53 a.m. to 11:34 a.m.)

[Questions and Answers]

Q.

I would like to ask you about underground financing. The other day, a so-called gold coin lender was raided by the police for the first time. It is said that behind the growth of new underground financial schemes, including the cashing of credit shopping quotas, which previously emerged as a major issue, is the use of such schemes by people subjected to the restriction on the total loan amount. Some people say that this is a harmful effect of the full enforcement of the amended Money Lending Act. What is your view on that?

A.

I understand that you are referring to the arrest of the gold coin lender by the Metropolitan Police Department. I am aware that the Metropolitan Police Department arrested the gold coin lender on June 29 for violation of the Investment Act (Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates), specifically on suspicion of imposing excessively high interest.

It is appropriate to refrain from commenting on a specific criminal investigation. However, generally speaking, it is very significant that the investigative authorities have raided a business operator in a case of gold coin lending. I hope that awareness of the need to avoid using such financial schemes will spread widely among people who may need financing.

Q.

In the past, it was pointed out that business operators like this thrive because they cannot be regulated by the Money Lending Act. Are you considering the possibility of recognizing them as money lenders?

A.

I understand that you would like to know whether gold coin lending does not constitute a violation of the Money Lending Act. However, let me refrain from commenting on a specific criminal investigation.

Q.

I am Takahashi, a freelance journalist.

Regarding the business integration plan of the Tokyo Stock Exchange (TSE) and the Osaka Securities Exchange (OSE), today, there was a media report that the TSE has proposed a takeover bid for the OSE. What do you think of that? Also, what is your view on the business integration plan of the two exchanges?

A.

I also read that newspaper report. However, the Financial Services Agency (FSA) has not been notified by the OSE or the TSE that anything has been determined.

Generally speaking, exchanges are required to provide services that better meet the needs of users and investors and achieve development themselves, and how to cope with such challenges is a matter to be considered by the management teams of exchanges as part of their business strategy. Of course, exchanges' business strategy is a matter to be considered by the management teams of exchanges, so the FSA will refrain from making comments with prejudgment.

Q.

What is your view on the integration of the TSE and the OSE?

A.

I cannot comment on that for now.

However, there have been trans-Atlantic mergers between various exchanges as you know, and I am keeping this reality in mind. However, for me, it is appropriate to refrain from making comments at this time.

Q.

I am Namikawa from Toyo Keizai.

Do you think that the government is dealing with the earthquake disaster with a sense of urgency?

A.

As the Minister for Financial Services, I believe that at least in the financial sector, we are acting with a sense of urgency.

On March 11, the day the earthquake occurred, I, together with the Bank of Japan's Governor, made a request to banks, Shinkin banks, credit cooperatives, life and non-life insurance companies and securities companies, including the 72 regional banks and other financial institutions headquartered in the six prefectures of the Tohoku region and Ibaraki Prefecture and their 2,700 branches. As I have repeatedly said, life and non-life insurance companies have been very cooperative in this respect. For example, they have assessed the damage status based on aerial photographs and have already paid earthquake insurance claims totaling one trillion yen, of which 500 billion yen have been paid in Miyagi Prefecture.

Yesterday, or the day before yesterday, the president of a certain bank with a branch in Sendai visited me. He said that companies and individuals have not faced such a severe cash crunch as was expected by his bank and he guessed that the payment of earthquake insurance claims totaling 500 billion yen may be supporting them. Although that may be nothing more than a gut feeling, the perception of bank officials on the frontlines is reliable.

Regarding life insurance, too, while it basically takes one year before the death of a missing person is certified since a death certificate or an autopsy report by a doctor is required, a simplified procedure has been permitted to shorten the waiting period to three months. This has been decided jointly by the FSA and the Ministry of Justice, which is responsible for matters related to death certification. Relevant procedures are under the jurisdiction of police and the Japan Coast Guard. In this respect, life insurance sales women are taking the trouble of going from mortuary to mortuary. An emergency measure is necessary in times of emergency as I have said over and over again. Although I have no intention of praising myself, as the minister in charge of financial affairs, I have made efforts to ensure the enactment of the bill to amend the Act on Special Measures for Strengthening Financial Functions with the support of all political parties. In that sense, it is important to strengthen the financial intermediary function in a comprehensive manner and protect depositors. Therefore, under this act, Shinkin banks and credit cooperatives will be able to receive funds from Deposit Insurance Corporation in 10 years as a last resort, depending on circumstances - this is a very exceptional measure in the history of the financial sector - if they apply for that, although it will be ultimately up to their central organizations, the FSA and, most importantly, Shinkin banks and credit cooperatives will make a decision. Of course, basically, financial discipline is very important. However, as this is an emergency situation caused by the earthquake disaster, the House of Representatives and the House of Councillors unanimously enacted the (amended) Act on Special Measures for Strengthening Financial Functions. The FSA staff worked very hard, not taking time off even during the holiday season. Regarding the double loan problem, too, the FSA is doing the spadework appropriately. Although this extends across a very wide range of fields, we will do our part appropriately at least in the fields for which we have been put in charge. All of us at the FSA and officials at the Tohoku Finance Bureau are working hard from their respective standpoints.

I believe that relevant industries, such as the life and non-life insurance and financial industries are also working very hard.

Q.

In late June, a general shareholders' meeting of Incubator Bank of Japan (Nihon Shinko Ginko) was held. Have you received a report on the contents of the meeting?

As far as I know, around 50 individual shareholders attended it and many of them criticized Mr. Kimura (former chairman of Incubator Bank of Japan) for earning profits by selling shares after things went bad. Regardless of whether you have received a report on that situation, what do you think of the fact that individual shareholders voiced such criticism?

A.

Regrettably, I have not received a report on that. However, as we have used the pay-off arrangement (limited deposit protection) for the first time since the end of World War II, causing inconvenience to depositors acting in good faith who had deposits in excess of 10 million yen, we will appropriately study the matters pointed out at the general shareholders' meeting.

Q.

The second supplementary budget, which was adopted upon a cabinet decision today, is worth around 2 trillion yen and includes measures to deal with the double loan problem. How do you feel about its size and contents?

A.

From around noon today, I am scheduled to receive a briefing from the FSA staff on the double loan problem. Numerous questions have been asked about the double loan problem at the Budget Committee and I have replied to some of them. Forgive me for mentioning this over and over again, but basically, the FSA is responsible for inspecting and supervising private financial institutions. In principle, the financial source of private financial institutions is deposits entrusted by individuals - savings in the case of Japan Post Bank - and those funds must be repaid with interest in principle. Therefore, we will use the Act on Special Measures for Strengthening Financial Functions to increase capital. Under the Act on Special Measures for Strengthening Financial Functions, we will not pursue the responsibility of managers nor will we demand the setting of efficiency targets. As this is a once-in-a-millennium tsunami, the government needs to do its utmost to appropriately deal with it, rather than pursuing the responsibility of managers. In that sense, financial institutions should take appropriate actions in the Tohoku region.

Q.

Could you tell me about the purpose of a meeting of the Financial System Council's working group on insider trading that is scheduled for Friday? I have one more question, which concerns the business integration plan of the OSE and the TSE. You said you will not comment on the affairs of specific companies. However, as this is related to the plan to establish a comprehensive exchange, I would like you to tell me about the government's thinking regarding what the Japanese market should be like in the future.

A.

Regarding insider trading, at the plenary session of the Financial System Council that was held on March 7 this year, the treatment of pure holding companies in relation to the regulation on insider trading was referred to the council as a matter of debate.

In response to that, the working group on insider trading regulation will hold its first meeting on July 8. This working group has been asked to debate issues related to the regulation on insider trading that may arise when companies conduct group management, such as the treatment of pure holding companies. Many pure holding companies are very small in size on a non-consolidated basis, as you know. On a consolidated basis, namely, if sales of subsidiaries are included, a fairly large number of Japanese companies have annual sales totaling trillions of yen. The working group will debate whether or not consolidated sales that include sales of subsidiaries should be used as a basis of the regulation.

As for the future schedule, the working group will hold debate once a month in principle and the timing of the conclusion of the debate will depend on how the debate will develop.

Apart from specific matters such as business integration, I believe that it is very important to make the Japanese market more attractive, as indicated by the fact that I have asked the Financial System Council to debate how to strengthen the international competitiveness of Japanese financial institutions as a whole.

(End)